Posts tagged 'CLO'

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Remember the days when securitised products were toxic, complicated and for the recklessly brave only? Another year of rising asset values later and the only members of the “10 per cent club” left are slices of equity on new issue collateralised loan obligations.

Morgan Stanley’s credit strategists have had their binoculars out and, which ever way you cut it, there simply aren’t big returns on offer in 2014. Except for high quality debt exposed to interest rate risk, the price of pretty much everything has gone up this year as yields have fallen.

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

Makes sense, given what Stein was mostly talking about — places in the market where the yield chase could be relying on assets that in turn rely on short-term funding. In other words, leverage that turns “overheating” into a supernova. Read more

Lisa joined FT Alphaville in September 2011 after a tour of duty through the guts of the financial industry, having worked as an analyst at a bank and for a financial data company. She's now the Head of New Projects for FT.com.

Back in December, the FT’s Tracy Alloway and Robin Wigglesworth explained how that which was financed by collateralised loan obligations was no longer going to be so financed. This will lead to a credit crunch for sub-investment grade companies that looks set to kick off in earnest in a couple of years.

Older CLOs* are making up for some of the slack by extending loans, but it appears that ultimately, funding will have to be obtained elsewhere or these companies will default. Read more

Lisa joined FT Alphaville in September 2011 after a tour of duty through the guts of the financial industry, having worked as an analyst at a bank and for a financial data company. She's now the Head of New Projects for FT.com.

Lisa joined FT Alphaville in September 2011 after a tour of duty through the guts of the financial industry, having worked as an analyst at a bank and for a financial data company. She's now the Head of New Projects for FT.com.

Lisa joined FT Alphaville in September 2011 after a tour of duty through the guts of the financial industry, having worked as an analyst at a bank and for a financial data company. She's now the Head of New Projects for FT.com.

A month ago, FT Alphaville took a closer look at a particular transaction that Barclays completed in order to decrease the amount of regulatory capital it was required to hold against a portfolio of loans.

The transaction is called “synthetic securitisation”. The bank buys protection on the credit risk of part of its own loan portfolio, sold by outside investors. They transfer the risk but the loans themselves physically remain on Barclays’ balance sheet. Read more

Kate is FT AV’s Asia Correspondent. She joined FT Alphaville in mid-2011 after carrying out various roles in the FT’s London office since 2005: interactive editor, companies reporter, and founding editor of the FT’s Energy Source blog.

European credit markets are bracing for more defaults as the bulk of collateralised loan obligations winds down in 2012 and 2013, the FT reports. Such CLOs have a finite life span after which they are not allowed to trade new loans for existing ones, or reinvest money received from repayments or interest on existing loans they hold. By the end of next year, the majority of CLOs will have gone “static”. By 2014, more than 98 per cent of European CLOs will have have a reached the same point, according to a report by Standard & Poor’s. This is expected to hurt the market’s ability to refinance an estimated €250bn of leveraged loans maturing in Europe between now and 2017, and removing a source of credit to the wider economy.

Joseph joined FT Alphaville way back in March 2010. He likes all the politically and legally fiddly bits of finance. He also likes credit, rates, global macro, tail risk, and all that stuff. (You should email him story ideas. He’ll take anything.)

A US bankruptcy court on Wednesday approved a deal to securitise loans from a $5.3bn portfolio made by the former investment bank Lehman Brothers, in a sign both of the quiet revival and the changed nature of the market for complex financial products, the FT reports. WCAS Fraser Sullivan is to take over management of the assets and will generate cash for creditors by selling a series of collateralised loan obligations – instruments that pool assets, which are then sliced into tranches of varying risk and return. The investment management firm expects to securitise at least $1bn of loans within the next year. In each sale, the Lehman estate will retain the equity tranche, the riskiest slice of a CLO first subject to any losses. The Lehman deal is “idiosyncratic”, said Steven Miller, managing director of S&P LCD, but “it is part of a broader pattern of consolidation”. The CLO industry has been consolidating since its heyday during the buy-out boom of 2006 and 2007, when new issuance totalled nearly $100bn in the two consecutive years. CLOs buy leveraged loans, which, along with junk bonds, are the main financing tools for leveraged buy-outs.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Rating agency Standard & Poor’s might be making headlines when it comes to Greece, but it’s also been roiling a much smaller corner of the market — Collateralised Loan Obligations (CLOs).

Creditflux’s Mike Peterson has a great scoop on a letter sent last month by S&P’s head of US credit. In it, James Parchment tells the agency’s clients that S&P will no longer shadow rate companies with revenue of more than $499m. For companies with turnover between $200m and $499m the agency will only give shadow ratings, or “credit estimates,” six months after the loan is issued. Read more

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

The market for Collateralised Loan Obligations — those sliced and diced business loans — may have only just reopened, but boy, has it evolved!

News came on Tuesday that JP Morgan is revising the $400m CLO arranged for Apollo Management; reducing the triple A-rated tranche by $1.75m, and increasing the triple B-rated tranche by $4m. The reason, presumably, is investor demand for those riskier, higher-yielding, slices. The structure should now look like this: Read more

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Is Bloomberg trying to tell us something about the ICO’s new €23bn CLO?

July 26 (Bloomberg) — Instituto de Credito Oficial, a Spanish government agency that lends to businesses, plans to issue 14.8 billion euros ($19.22 billion) of bonds backed by company loans . . . Amid the financial crisis, Spanish banks have put together asset-backed bond issues that they don’t sell, instead using them as collateral for European Central Bank loans. The nation’s banks borrowed a record 126.3 billion euros from the ECB in June, according to data compiled by the Bank of Spain. Read more

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Last week, Lloyds Banking Group became the first UK bank to sell bonds backed by loans to small and medium-sized enterprises — an SME CLO — since the asset-backed market basically shut in 2007. But, reports FT Alphaville, a Moody’s error may have cost Lloyds an additional £20m in the deal. Read more

One of the engines behind the now bust buy-out boom has sputtered back to life, with investors buying a new collateralised loan obligation in the US market, the first to be launched in more than a year, the FT reported. Analysts are now predicting a modest recovery in the CLO market but volumes are likely to remain relatively muted, and the US market is likely to pick up before Europe’s.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

When, in the spring of 2008, there came a sudden burst of CLO issuance, there was some speculation that the securitisations were being created to take advantage of a new Federal Reserve facility.

The Fed’s Primary Dealer Credit Facility, or PDCF, was initiated in March 2008, in response to troubles at Bear Stearns and the seizing-up of money markets. The facility let primary dealers, the Fed’s official trading partners, borrow from the central bank in return for posting investment-grade collateral. Read more

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Deus Ex Macchiato points us in the direction of Volume IV of the court-appointed Examiner’s report into the Lehman Brothers’ bankruptcy. Specifically, the bank’s use of the Federal Reserve’s Primary Dealer Credit Facility, or PDCF, something which has already been covered here and here. Read more

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.